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The Marilyn Abrams Living Trust v. Pope Investments LLC

Court of Chancery of Delaware

May 29, 2018


          Submitted: May 16, 2018

          Thomas E. Hanson, Jr., BARNES & THORNBURG LLP, Wilmington, Delaware; Jeffrey R. Blackwood, BRADLEY ARANT BOULT CUMMINGS LLP, Jackson, Mississippi; Attorneys for Plaintiff.

          Jonathan M. Stemerman, ELLIOTT GREENLEAF, P.C.; Attorney for Defendants.


          LASTER, V.C.

          The Marilyn Abrams Living Trust (the "Trust") sought books and records from the defendant entities (the "Companies"). The Trust made multiple requests for information, but the Companies denied each request in its entirety. The Trust filed this action and prevailed at trial. In addition to ruling in the Trust's favor on the merits, [1] my post-trial decision found that the Companies had raised bad-faith arguments to contest the Trust's clearly established right to information, thus warranting an award of expenses under the bad-faith exception to the American Rule.[2]

          After the Companies pursued a motion for reargument, which was denied, the parties conferred regarding the amount of the award. They could not agree, so the Trust moved to quantify it. I granted the Trust a total award of $317, 717.20.[3]

         The Companies appealed, challenging both the outcome on the merits and the award of expenses. The Delaware Supreme Court affirmed.[4]

         The Trust has now moved to recover additional expenses. The Trust seeks a total of $94, 583.58, comprising (i) $65, 574.78 incurred successfully defending the appeal and (ii) $29, 008.80 incurred at the trial level that the Trust had not been able to submit as part of its previous application. The Companies oppose the motion in its entirety.

         Whether the Trust can recover these categories of expenses at this time appears to present issues of first impression under Delaware law. This decision concludes that when a trial court has awarded a party expenses under the bad-faith exception to the American Rule, and that party subsequently defends the trial court's ruling successfully on appeal, the trial court lacks authority after the appeal to award the expenses that the party incurred defending the appeal. This decision similarly concludes that when a trial court has awarded a party expenses under the bad-faith exception to the American Rule, and the litigation runs its course at the trial level, resulting in a judgment that is final for purposes of appeal, then that party cannot subsequently ask the trial court for a supplemental award if it later realizes that it left certain expenses out of its previous request or determines that it subsequently incurred additional amounts at the trial level. The Trust's application is therefore denied.


         The Trust seeks in its application to recover expenses incurred defending the Companies' appeal. As the Trust sees it, the appeal was frivolous and a continuation of the Companies' bad-faith resistance to the Trust's requests for books and records.

         In my view, a trial court lacks authority to award expenses incurred on appeal on the theory that the appeal was frivolous, absent some direction by the Delaware Supreme Court to undertake that task. Supreme Court Rule 20(f) recognizes that "[t]he Court may in any case involving a frivolous appeal, enter a special order assessing costs . . . as justice may require."[5] The reference to "[t]he Court" is to the Delaware Supreme Court, not other courts.

         Trial courts in this state do not generally enforce the Delaware Supreme Court's rules. The only high court rules that this court typically applies are Supreme Court Rules 41 and 42, which address, respectively, the process by which a trial court certifies a question of law for the Delaware Supreme Court's consideration and the process by which a trial court certifies an interlocutory appeal. Both rules speak directly to the trial court and tell the trial court what to do. They do not imply that a trial court has jurisdiction to administer other rules. If anything, the specific direction to the trial court in Rules 41 and 42 implies the opposite about other Supreme Court rules.

         For the contrary proposition, the Trust relies on four cases: Gatz Properties, LLC v. Auriga Capital Corp., [6] Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, [7] Wheeler v. Wheeler, [8] and Council of Wilmington Condominium v. Wilmington Avenue Associates, L.P.[9] None of these decisions resemble the scenario presented here.

         In Gatz, the Delaware Supreme Court directed the trial court to consider an application for expenses based on an allegedly frivolous appeal. The appellees in Gatz moved before the Delaware Supreme Court to recover expenses under Supreme Court Rule 20(f). The Delaware Supreme Court noted that "[t]his Court has authority to award attorney fees in appropriate cases."[10] But the high court chose to have the Court of Chancery address the application in the first instance, explaining:

In this case, however, whether the appellants acted in bad faith in pursuing this appeal is a question possibly requiring findings of fact that are better addressed by the Court of Chancery. We, therefore, deny the appellees' motion without prejudice to their right to pursue in the Court of Chancery their claim for attorney fees on appeal.[11]

         The superior tribunal in Gatz thus determined that the trial court should assess the Rule 20(f) application in the first instance because of likely factual issues. In my view, the Gatz case does not suggest that a trial court always has the ability to consider a post-appeal application for expenses based on a claim that the appeal was frivolous for purposes of Rule 20(f). It rather illustrates the obvious fact that that the Delaware Supreme Court can delegate to this court the task of taking the first cut at ruling on a Rule 20(f) application. In this case, the Trust did not make a Rule 20(f) application before the Delaware Supreme Court, and the Delaware Supreme Court did not instruct this court to take a first cut at ruling on a Rule 20(f) application.

         The Scion decision did not involve an allegedly frivolous appeal; it involved a remand to consider an alternative basis for expense-shifting at the trial level. Originally, at the trial level, the plaintiffs sought to recover their expenses under prevailing-party provisions in the governing agreements, and I granted the application.[12] On appeal, the Delaware Supreme Court held that the prevailing-party provisions did not apply.[13] The high court then turned to the appellees' argument that there were separate and independent bases to affirm the fee award, either as an award pursuant to 10 Del. C. § 5106 or under the bad-faith exception to the American Rule. The Delaware Supreme Court rejected the potential application of Section 5106, [14] but left open the possibility of fee shifting under the bad-faith exception. Rather than ruling in the first instance on that theory, the high court remanded the case so that I could address it in the first instance.[15]

         At the same time, the high court denied an "informal application for an award of attorneys' fees for this appeal, " made in a single sentence of the appellees' answering appellate brief.[16] The high court reasoned that it would not rule on such a request "in the absence of a formal motion made and presented in accordance with the Supreme Court rules."[17] Scion thus does not imply that a trial court has the power to consider an application for expenses based on an allegedly frivolous appeal. It rather indicates that the Delaware courts will not entertain an application for expenses for an allegedly frivolous appeal without a formal Rule 20(f) motion. In terms of the further proceedings on remand, the Scion decision illustrates a trial court's obligation to address an issue in accordance with the Delaware Supreme Court's mandate. In this case, the Trust did not make a Rule 20(f) motion, and the Delaware Supreme Court did not remand the case with instructions for me to consider any alternative bases for shifting expenses.

          The Wheeler decision involved a prolonged divorce proceeding in the Family Court that witnessed an improvident interlocutory appeal, a subsequent appeal from the final judgment, and a further appeal after the Family Court ruled on a series of ancillary matters. At each stage, the Family Court ruled in favor of the husband, and the wife appealed. The Delaware Supreme Court dismissed the improper interlocutory appeal, affirmed the Family Court's ruling on the merits, and affirmed the Family Court's rulings on the ancillary matters. After each appeal, the Family Court granted the husband's motion for the expenses incurred litigating the appeal. After the final award, the wife appealed again, contending that the Family Court lacked jurisdiction to award expenses for an appeal. The Delaware Supreme Court affirmed all of the Family Court's awards, citing a statute that gives the Family Court authority to shift expenses from one party to another.[18] The high court held that "[t]he unambiguous language of the statute confers original jurisdiction upon the Family Court to award attorney's fees following an appeal to this Court" and that "[t]he Family Court's jurisdiction to award attorney's fees following an appeal is not dependent upon a remand from this Court."[19] In this case, there is no similar statute that would give this court jurisdiction to award expenses following an appeal.

         Last, in Wilmington Condominium, the Superior Court extended the logic of Wheeler to a situation in which a party recovered expenses at the trial level pursuant to a prevailing-party provision in an agreement. After the party prevailed again on appeal, the party returned to the trial court and sought additional expenses. The trial court concluded that the contractual prevailing-party provision continued to operate and entitled the party to recover expenses for prevailing on appeal.[20] In this case, the Trust has not cited a prevailing-party provision that could operate to the same effect.

         None of the Trust's cases support the proposition that this court has inherent authority to entertain an application to recover expenses for a frivolous appeal. The cases instead suggest that unless a party moves for expenses pursuant to Rule 20(f), and unless the Delaware Supreme Court instructs the trial court to address the motion in the first instance, the trial court lacks jurisdiction to consider the application. A trial court may, however, award expenses if the party seeking them has an independent right of recovery, such as pursuant to a statute (Wheeler) or a contractual prevailing-party provision (Wilmington Condominium). The Trust invokes this court's inherent authority, which is unavailing.

         Federal authority points to the same conclusion.[21] In Cooter & Gell v. Hartmarx Corp., [22] the United States Supreme Court considered whether a district court that had awarded sanctions against a defendant for asserting a counterclaim that violated Rule 11 of the Federal Rules of Civil Procedure could grant the injured plaintiff the additional expenses that the plaintiff incurred defending the award on appeal. The Court held that the district court lacked the necessary authority because Rule 11 applied only to trial court proceedings, not to appeals, and that "[i]f the appeal of a Rule 11 sanction is itself frivolous, Rule 38 gives appellate courts ample authority to award expenses."[23] Rule 38 of the Federal Rules of Appellate Procedure addresses awards of expenses for frivolous appeals in a manner analogous to Delaware Supreme Court Rule 20(f). The highest court in the land did not view the district court as having independent authority to administer Rule 38.

         The Cooter & Gell decision also considered and rejected a related theory under which one line of decisions from the United States Courts of Appeals had awarded expenses that a party incurred successfully defending a Rule 11 sanction on appeal. Those decisions held that the party incurred the expenses on appeal because of the sanctioned pleading; hence the injured party should be able to recover those expenses and be made whole for the sanctioned conduct.[24] The United States Supreme Court disagreed, endorsing instead the view of other circuits and holding that "[i]f the district court imposes Rule 11 sanctions on the plaintiff, and the plaintiff appeals, the expenses incurred in defending the award on appeal are directly caused by the district court's sanction and the appeal of that sanction, not by the plaintiff's initial filing in district court."[25] The highest court in the land observed that this outcome "accords with the policy of not discouraging meritorious appeals" and also would help avoid "the undesirable effect of encouraging additional satellite ...

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